UK economy on its knees as shock growth figures show disastrous 0.7% plunge in output

The UK economy took a shocking downward turn in the second quarter, shrinking by a massive 0.7 per cent and plunging Britain into its worst ever double-dip recession, official figures showed today.

UK economic output had been expected to fall by about 0.2 per cent but a disastrous slump in construction meant that the contraction between April and June was far more severe, according to the Office for National Statistics.

It is the third quarter of negative growth, following a 0.3 per cent fall in the first quarter, and 0.4 per cent fall in the final quarter of 2011. Those two consecutive quarters of contraction meant the UK had already been in a recession before today's gross domestic product data was revealed.

Scroll down to watch analysis from the ONS

Building on hold: Another quarter of negative
growth ups the pressure on George Osborne and reflects tough times for
the construction sector.

The current recession is described as a 'double-dip' because the economy had not made up the ground lost in the recession of 2008-09, when five quarters of negative growth were recorded, before turning negative again.

The second quarter fall in output confirmed today is the biggest since the depths of the financial crisis in the first quarter of 2009.

It was driven by falls in all areas of the economy, but particularly in construction which decreased a startling 5.2 per cent in the quarter. Production industries declined 1.3 per cent and the services sector fell by 0.1 per cent.

Heading south: UK GDP has been declining since climbing out of recession in 2009.

The growth data was hindered by an extra bank holiday for the Queen's Diamond Jubilee, which the ONS statisticians warned made estimates less sure, and the wettest April to June period on record.

A fall in GDP had been predicted after a slew of negative economic surveys, but the size of the fall shocked economists who had been forecasting a more modest 0.2 per cent fall.

'SACK OSBORNE': NEWS SLUMP SPARKS COALITION IN-FIGHTING

Lib Dem peer Lord Oakeshott said George Osborne should be sacked and called him a 'Chancellor on work experience' after today's GDP fall.

Meanwhile Tories furiously briefed against Business Secretary Vince Cable, who they claim has blocked their growth-stimulating reforms.

Lord Oakeshott, the Liberal Democrats' former Treasury spokesman, said today the Chancellor should be fired.

He even suggested Vince Cable was the ideal candidate to replace him.

'Any business failing its key objective like this would change its strategy or its management or probably both,' he said. 'George Osborne has got no business experience.

'He has never worked outside politics. He is doing surprisingly well for a chancellor on work experience.

'But really in a torrid time like this I think we do need absolutely the best people available.’

'Britain should do the same now with a bold plan A-plus. We need our A team at the Treasury.'

Afterwards Mr Cable was forced to distance himself from the comments by his Liberal Democrat saying: 'We have a very good team in the Government and the Treasury and I work very harmoniously with them.'

Commenting on Lord Oakeshott's remarks, Mr Cable said: 'He is not an adviser. He is a personal friend I have known for many years, but he is an independent political and economic commentator with strong views of his own. I don't happen to agree.'

Ross Walker of Royal Bank of Scotland said: 'Everything's a little bit weaker than expected. The construction fall looks implausible, the scale of it. The main disappointment is the services number. We thought even with the drag from the Jubilee that we would probably just about squeeze some growth out of that sector and it's contracted.

Alan Clarke at Scotiabank said: 'This is a disaster for UK growth. It looks like construction has done a lot of the damage. In no uncertain terms disaster and on average for the year it's looking very unlikely that we'll be on the right side of zero growth. More likely we'll be contracting.'

The figure is the ONS's first estimate and may be revised in coming months, but it suggests the UK is mired in the longest double-dip recession since quarterly records began in 1955 and it is believed to be the longest since the Second World War.

The last double-dip recession was in the 1970s, when the economy was hamstrung amid soaring oil prices and a miners' strike, but that only lasted two quarters.

Today's grim economic reading will heap more pressure on the Government and fuel criticism that Chancellor George Osborne's austerity measures are choking off the recovery.

The UK's economy is 0.3 per cent smaller than when the coalition came to power in the second quarter of 2010, the ONS figures showed.

Mr Osborne said: "We all know the country has deep-rooted economic problems and these disappointing figures confirm that. We're dealing with our debts at home and the debt crisis abroad. We've made progress over the last two years in cutting the deficit by 25 per cent and businesses have created over 800,000 new jobs.

'But given what's happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that's exactly what we're doing.'

Blast from the past: The last double-dip recession came in the 1970's when strike action and an oil price shock crippled the economy.

The pound fell against the euro as the data increased chances that the Bank of England will pump more emergency money into the economy or drop interest rates further.

The ONS’s figures have been called into question in recent months because they are at odds with more optimistic industry surveys and improving employment figures. The ONS itself has said that ots first estimates of GDP tend to be revised by an average 0.2 per cent either way by the time a final estimate in reached.

Some economists have even suggested that the UK may not be back in recession at all and have voiced fears that gloomy official figures may be hitting confidence.

How does the current slump compare with previous recessions?

Vicky Redwood, chief UK economist at Capital Economics, said there was a possibility that the GDP figures are underestimating the true strength of the economy but added that it would take 'pretty hefty revisions' to make the recent performance look even half decent.

She added: 'What's more, the UK still faces significant obstacles, not least the knock-on impact of the renewed tensions in the eurozone. Even allowing for a decent bounce-back in the third quarter, we still expect the economy to contract by about 0.5 per cent this year and to grow by only 0.5% per cent in 2013.'